On behalf of the defendant-appellant, the cause was
submitted on the briefs of Jeffrey J. Guerard of Guerard Law LLC, Milwaukee.

Respondent

ATTORNEYS:

On behalf of the plaintiff-respondent, the cause was
submitted on the briefs of James W. Mohr, Jr., of Mohr & Anderson, LLC, Hartford.

2012 WI App 75

COURT OF APPEALS

DECISION

DATED AND FILED

June 7, 2012

Diane M. Fremgen

Clerk of Court of Appeals

NOTICE

This opinion is subject to
further editing.If published, the
official version will appear in the bound volume of the Official
Reports.

A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals.SeeWis. Stat. § 808.10 and Rule 809.62.

Appeal No.

2010AP2442

Cir. Ct. No.2009CV2203

STATE OF WISCONSIN

IN COURT OF
APPEALS

Society Insurance,

Plaintiff-Respondent,

v.

Rich Bodart, d/b/a Bodart Landscaping & Lawn
Service,

Defendant-Appellant,

Synergetic Marketing Sales, Inc.,

Defendant.

APPEAL
from an order of the circuit court for Waukesha County:mac j.
davis, Judge, and PATRICK L. SNYDER, Reserve Judge.Affirmed.

Before Higginbotham, Sherman and Blanchard, JJ.

¶1BLANCHARD, J. Rich Bodart appeals a circuit
court order denying his motion for contempt against his insurer, Society
Insurance.The underlying question is
whether Society had a continuing duty to defend Bodart after the only arguably
covered claim in a lawsuit against Bodart was settled and dismissed, leaving
only non-covered claims.The parties
agree that no Wisconsin case decides this question.We conclude, based on the terms of the
insurance policy and on a rule that is consistently cited in persuasive
authority, that Society did not have a continuing duty to defend Bodart under
the circumstances of this case.We
therefore affirm the circuit court’s order.

BACKGROUND

¶2The pertinent facts are straightforward and undisputed for
purposes of this appeal.A civil lawsuit
alleging five claims against Bodart was filed in Michigan.The nature and merits of the claims in the
Michigan action are not relevant to any issue presented in this appeal.

¶3Society filed this separate action in Wisconsin, seeking a
declaration regarding its duty to defend Bodart in the Michigan action.The circuit court concluded in an order
(hereinafter, “duty-to-defend order”) that Bodart’s policy with Society
provided at least arguable coverage for one of the five claims in the Michigan
action and that Society therefore had a duty to defend against the Michigan
action.[1]

¶4Following this order, Society assumed the defense.It proceeded to settle three of the five
claims, including the only claim that the circuit court had concluded was at
least arguably covered.Society obtained
a release as part of the settlement, and the settled claims were dismissed from
the Michigan action.

¶5Society sent Bodart a letter informing him that, in light of
the settlement and dismissal, it would withdraw its defense as to the remaining
two claims.Society’s letter stated:“Since, according to the [duty-to-defend
order], Society has now settled the only covered claim against you, together
with two other claims which were not covered, Society will no longer be
furnishing a defense to you in the Michigan action.”In response, Bodart filed a motion for
contempt in this action, asserting that Society’s unilateral decision to
withdraw its defense violated the duty-to-defend order.

¶6In addressing the contempt motion, the circuit court
concluded that Society no longer had a duty to defend Bodart and therefore
denied Bodart’s motion.The court also
concluded that, even if Society had “perhaps” violated the court’s
duty-to-defend order by deciding to withdraw without court permission, that
possible violation was “cured” when the court heard Bodart’s contempt motion
and concluded that Society no longer had a duty to defend as a result of the
settlement and dismissal.Bodart now
appeals the order denying his motion for contempt.

DISCUSSION

¶7A circuit court’s contempt decision is discretionary and will
be affirmed if the court reached a reasonable decision after applying the
proper legal standards to the relevant facts.SeeBenn v. Benn,
230 Wis. 2d 301, 308, 602
N.W.2d 65 (Ct. App. 1999).Here, the
reasonableness of the court’s contempt decision turns on the scope of Society’s
duty to defend, a question of law that we review de novo.SeeEstate
of Sustache v. American Family Mut. Ins. Co., 2008 WI 87, ¶18, 311
Wis. 2d 548, 751 N.W.2d 845.More
specifically, the dispositive question is whether Society had a continuing duty
to defend Bodart after the only arguably covered claim against Bodart was
settled and dismissed, leaving only non-covered claims.For the following reasons, we conclude that
it did not.

¶9In addition, determining the scope of an insurer’s duty to
defend often requires the consideration of rules which, while not express in
the insurance policy, are well established in case law.One such rule, as previously referenced, is
that an insurer’s duty to defend is determined based on the allegations in the
underlying complaint.See, e.g., Olson v. Farrar, 2012 WI
3, ¶¶29-32 & n.5, 338 Wis. 2d 215, 809 N.W.2d 1; Fireman’s FundIns.
Co. v.Bradley Corp., 2003 WI 33, ¶19, 261 Wis. 2d 4, 660 N.W.2d
666.

¶10Consistent with this approach, we will consider pertinent rules
in the case law as well as any applicable policy language.We start with the policy language, then turn
to the case law.We agree with Society
that both support the circuit court’s decision.

¶11Bodart fails to discuss any policy language.However, as Society explains, there is at
least one relevant provision.That
provision gives the insurer discretion to settle claims and provides notice to
the insured that the insurer “will have no duty to defend the insured against
any ‘suit’ … to which this insurance does not apply.”[2]Under this policy language, there is no duty
to defend a “suit” when insurance coverage does not apply to the “suit.”

¶12It is true that this provision does not expressly address the
particular question of whether Society’s duty might continue when the only
arguably covered claim has been settled and dismissed.In this respect, the policy language could be
said to be silent on that question.We
conclude, however, that a reasonable insured would understand this language as
Society does, to mean that Society has no duty to defend an insured in a suit
once it has become clear that the suit no longer involves any claim that is
even arguably covered.Stated another
way, once all at least arguably covered claims are settled and dismissed, those
claims are no longer part of the suit, and the insurance no longer applies to
that suit.

¶13Turning to case law, the parties agree that no Wisconsin case
has decided the precise question of whether an insurer has a continuing duty to
defend remaining claims after all at least arguably covered claims are settled
and dismissed.However, we now discern
from the parties’ briefing and our own research that the general rule
consistently reflected in persuasive authority is this:An insurer’s duty to defend ends after all at
least arguably covered claims are settled and dismissed.See,
e.g., Lockwood Int’l, B.V. v. Volm Bag Co., 273 F.3d 741, 744 (7th
Cir. 2001) (“[I]f in the course of litigation the covered claims fall out of
the case through settlement …, the insurer’s duty to defend [the] insured
ceases.”); Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 417 (Minn.
1997) (“Once the insurer settled and paid [the covered] claims, it … completely
performed its contractual duty.”); Allan
D. Windt, Insurance Claims & Disputes § 4:28 (5th ed. 2007)
(generally an insurer may withdraw its defense if “the insurer enters into a
settlement with the plaintiff pursuant to which the plaintiff dismisses those
claims encompassed by the policy—even though the lawsuit continues as to the
noncovered claims”); see alsoLee R. Russ & Thomas F. Segalla, 9
Couch on Insurance § 200:49 (3d ed. 2005) (“An insurer’s duty to defend
continues until final resolution of the covered claims.”).

¶14We have located no authority, nor has Bodart provided any
authority, to the contrary.Bodart
relies on City of Hartsville v. South Carolina Municipal Insurance & Risk
Financing Fund, 677 S.E.2d 574 (S.C. 2009), but that case is consistent
with, not contrary to, the general rule.In City of Hartsville, the court concluded that at least some of
the allegations remaining after dismissal of a purportedly covered claim could
themselves constitute a covered claim.See id.
at 576-77, 579-82.Thus, City
of Hartsville presents a different fact situation and stands for a rule
that the duty to defend continues as long as any allegations that constitute an
at least arguably covered claim remain pending.That rule, in turn, is consistent with the general rule set forth above
that the duty ends once all at least arguably covered claims are settled and
dismissed.[3]

¶15In addition, we are persuaded that the general rule from
persuasive authority is consistent with several well-established rules in
Wisconsin case law, as summarized in the following paragraphs.

¶16An insurer’s duty to defend is determined based on the
allegations in the underlying complaint, construed liberally.See,
e.g., Olson, 338 Wis. 2d 215, ¶¶29-30 & n.5; Fireman’s
Fund, 261 Wis. 2d 4, ¶¶19-20.Consistent with this rule, once all covered (and arguably covered)
claims have been settled and dismissed, there are no longer any allegations in
the complaint that are arguably covered, no matter how liberally construed.

¶17Any doubt regarding the duty to defend is resolved in favor of
the insured.See, e.g., Olson, 338 Wis. 2d 215, ¶29; Fireman’s
Fund, 261 Wis. 2d 4, ¶20.Consistent with this rule, once all covered (and arguably covered)
claims have been settled and dismissed, all doubt has been resolved against the
insurer’s duty to defend.

¶18“The insurer is under an obligation to defend only if it could
be held bound to indemnify the insured, assuming that the injured person proved
the allegations of the complaint ….”Olson,
338 Wis. 2d 215, ¶29 (quoting Grieb v. Citizens Cas. Co., 33
Wis. 2d 552, 558, 148 N.W.2d 103 (1967)).Consistent with this rule, once all covered (and arguably covered)
claims have been settled and dismissed, the insured could no longer be held
bound to indemnify the insured.

¶19The duty to defend extends to the “entire suit” against an
insured, even if only one claim in the suit is covered.See,
e.g., Fireman’s Fund, 261 Wis. 2d 4, ¶21; Doyle v. Engelke, 219 Wis. 2d
277, 285 n.4, 580 N.W.2d 245 (1998).Consistent with this rule, once all covered (and arguably covered)
claims have been settled and dismissed, there is no longer even one covered
claim in the suit.We note that Bodart
points to no Wisconsin case or analogous case from any other jurisdiction
applying the “entire suit” rule after all covered claims have been settled and
dismissed.

¶20Further, the general rule is consistent with the oft-stated
principle that we do not construe insurance policies to cover risks that the
insurer did not contemplate and for which the insurer has not received a
premium.See, e.g., Estate of Sustache, 311 Wis. 2d
548, ¶19; American Family Mut. Ins. Co. v. American Girl, Inc., 2004 WI
2, ¶23, 268 Wis. 2d 16, 673 N.W.2d 65.Adopting Bodart’s position here would establish a rule that requires
insurers to continue to defend insureds even when it has become clear that
there could not possibly be coverage for any remaining allegations.As the Minnesota Supreme Court explains in Meadowbrook:“To require an insurer who undertakes a
defense on the basis of arguably covered claims to remain in the litigation
even after those claims have been resolved, is to force the insurer to defend
claims not arguably covered by the policy.”Meadowbrook, 559 N.W.2d at 416.

¶21As the Meadowbrook court further explains,
a contrary rule would result in a perverse incentive for insurance companies to
litigate questions of coverage more aggressively, counter to the general
interests of their insureds and adding costs for all involved:“Such a [contrary] rule also would encourage
insurers to avoid defending lawsuits that actually include arguably covered
claims.The result would be an increase
in declaratory judgment actions brought by insureds to force insurers to
perform their contractually mandated duties.”Id.

¶22For all of these reasons, we adopt the general rule.However, we hasten to add that the persuasive
authority on which we rely includes exceptions to that rule.At a minimum, these sources suggest that the
rule may not apply when the insurer’s withdrawal from the action would
prejudice the insured’s defense of the remaining, non-covered claims, see9
Couch on Insurance § 200:52,[4]
or when the insurer has purported to “settle” claims out of a case but has done
so in bad faith, see Lockwood, 273 F.3d at 744-46.

¶23Here, we need not address the exceptions established in other
jurisdictions in any detail, because Bodart provides us with no basis to
conclude that any potential exception that is, or should be, a part of
Wisconsin law applies here.He asserts
that his situation is like the bad faith case of Lockwood,but
points to no evidence supporting that assertion.The facts of Lockwood involve the
extreme circumstance of a “contrived complaint.”In Lockwood, the insurer paid $1.5
million to the plaintiff to file an amended complaint omitting all covered
claims, without consulting the insured, and colluded with the plaintiff in
re-writing the complaint “line by line.”Id. at 744.Nothing in
the record suggests that Society in this case engaged in anything resembling a
“conspicuous betrayal of the insurer’s fiduciary duty to its insured” by
agreeing “with its insured’s adversary to contrive a complaint that would
eliminate any remaining contractual obligation of the insurance company to
defend the insured.”Seeid.

¶24Accordingly, we apply the general rule and conclude, as the
circuit court did, that Society no longer had a duty to defend Bodart after
Society settled the only arguably covered claim and that claim was
dismissed.Under this general rule,
Society was permitted to withdraw its defense at that time.

¶25Bodart argues that, even if Society’s duty to defend ended with
settlement and dismissal of the only covered claim, the circuit court
nonetheless should have found Society in contempt for unilaterally deciding to
withdraw instead of seeking advance court permission.So far as we can discern, there are two
aspects to Bodart’s argument in this respect.As we explain below, neither is persuasive.

¶26First, Bodart argues that, even if Society’s duty to defend
ended with settlement and dismissal of the only covered claim, the court should
have held Society in contempt for failing to seek court approval before
withdrawing, consistent with the procedures insurers are encouraged to
follow—and that Society followed here in filing this action—when initially
contesting their duty to defend at an earlier stage of proceedings.See,
e.g., Liebovich v. Minnesota Ins. Co., 2008 WI 75, ¶55, 310
Wis. 2d 751, 751 N.W.2d 764; Baumann v. Elliott, 2005 WI App 186,
¶8, 286 Wis. 2d 667, 704 N.W.2d 361; Grube v. Daun, 173 Wis. 2d 30,
75, 496 N.W.2d 106 (Ct. App. 1992).[5]However, even assuming that insurers should
be strongly encouraged to follow analogous procedures at later stages of
proceedings, such as the one the parties faced here, Bodart acknowledges that
such procedures are not mandatory.SeeLiebovich, 310 Wis. 2d 751,
¶55.[6]We see no reason why Society’s failure to
follow a non-mandatory procedure required the circuit court to find Society in
contempt, and Bodart does not point to any facts otherwise showing that the
discretionary contempt decision here was unreasonable.

¶27In a second, related argument, Bodart contends that, again even
if Society’s duty to defend ended with settlement and dismissal of the only
covered claim, the court erred in failing to find Society in contempt of the
court’s duty-to-defend order, because by its terms the order required Society
to defend the entire suit until Society sought and received court permission to
withdraw, and Society withdrew without first being relieved of its duty by the
court pursuant to a new order.We
disagree that the order imposed this requirement.Although the order provided that Society had
a duty to defend the “suit” against Bodart, based on the only arguably covered
claim, the order was silent on the question of whether Society’s duty to defend
would continue if that claim was settled and dismissed, and on the question of
whether Society needed to seek permission from the court to withdraw its
defense in such a situation.Thus, in denying
Bodart’s contempt motion, the circuit court reasonably focused on what the law
required, rather than any particular language in the order.

¶28Moreover, as indicated above, the circuit court concluded that,
even if Society had “perhaps” violated the duty-to-defend order by unilaterally
deciding to withdraw, Society’s possible violation of the order was “cured”
once the court heard Bodart’s contempt motion and concluded that Society no
longer had a duty to defend after the arguably covered claim was settled and
dismissed.Bodart develops no argument
explaining why the court was required to find Society in contempt even though
any possible violation was “cured,” or why it was not a reasonable decision to
conclude that the contempt was in fact “cured.”[7]

CONCLUSION

¶29In sum, for all of the reasons stated, we conclude that the
circuit court properly exercised its discretion in denying Bodart’s motion for
contempt.Accordingly, we affirm the
court’s order denying that motion.

By the Court.—Order affirmed.

[1] An
insurer has a duty to defend even when there is only “arguable,” as opposed to
“actual,” coverage.See, e.g., Fireman’s Fund Ins. Co. v.Bradley
Corp., 2003 WI 33, ¶20, 261 Wis. 2d 4, 660 N.W.2d 666.The distinction between the two arises
because of the rule that the duty to defend is determined based on the
allegations in the underlying complaint, regardless whether those allegations
turn out to be true.Seeid., ¶¶19, 21.

[2] The
record does not contain a copy of the policy, but there appears to be no
dispute that the following language, as supplied by Society, is the pertinent
language and is accurate:

We will pay those sums that the insured becomes
legally obligated to pay as damages because of “bodily injury,” “property
damage” or “personal and advertising injury” to which this insurance
applies.We will have the right and duty
to defend the insured against any “suit” seeking those damages.However,
we will have no duty to defend the insured against any “suit” seeking damages
for “bodily injury,” “property damage” or “personal and advertising injury,” to
which this insurance does not apply. We may[,] at our discretion, investigate any
“occurrence” and settle any claim or “suit” that may result.

(Emphasis added.)

[3] Bodart
asserts in a single sentence, without citation to the record or further
explanation, that one of the remaining claims in this case includes allegations
of “some of the same facts” that formed the basis for the arguably covered
claim.However, an overlap in
allegations does not necessarily establish that the remaining claim is at least
arguably covered.Without further
explanation, Bodart’s argument is not persuasive.Moreover, Bodart’s argument comes too late
because, to the extent it could be correct, it runs directly contrary to the
circuit court’s duty-to-defend order, in which the court concluded that only
one of the original five claims was even arguably covered under the policy, and
Bodart did not appeal this order.

[4] Examples
of prejudice to the insured justifying an exception to the general rule cited
by this authority would include withdrawal at a time or under circumstances
that undermine the ability of the insured to produce a material witness or to otherwise
adequately prepare his or her defense to the remaining claims.SeeLee R. Russ & Thomas F. Segalla,9 Couch on Insurance § 200:52,
55 (3d ed. 2005).

(1) [An
insurer] may seek a declaratory judgment; (2) it may enter into an
agreement with the insured to defend while retaining the right to challenge
coverage; (3) similarly, it may afford a defense under a reservation of
rights[;] … (4) finally, it may seek a bifurcated trial, in which the
court decides the coverage issue in a separate action from the action on the
merits of the complaint.

While these
procedures are not absolute requirements, we strongly encourage insurers
wishing to contest liability coverage to avail themselves of one of these
procedures rather than unilaterally refuse to defend. A unilateral refusal to defend without first
attempting to seek judicial support for that refusal can result in otherwise
avoidable expenses and efforts to litigants and courts, deprive insureds of
their contracted-for protections, and estop insurers from being able to further
challenge coverage.

[7] Among
its arguments, Society contends that the circuit court found no contempt in
part because Society did not actually withdraw its defense of Bodart before the
time of the contempt hearing, despite Society’s earlier letter to Bodart
stating that Society “will no longer be furnishing a defense.”This argument is difficult to square with the
circuit court’s observation that “perhaps” Society violated the duty-to-defend
order by unilaterally deciding to withdraw and sending the letter to Bodart.Regardless, we need not and do not rely on
this argument of Society’s because our discussion in the text above is
sufficient to uphold the circuit court’s decision.